Auto Enthusiast Platform Holley Lets Investors Put the Pedal to the Metal

Holley merging with SPAC Empower Ltd. (NYSE: EMPW)



  • Holley merging with SPAC Empower Ltd. (NYSE: EMPW)
  • Leader in $34 billion fragmented auto enthusiast market
  • Profitable company with 113-year legacy
  • Sales in 2020 +25% to $580 million; 3x biggest competitor
  • Trades at just 10x 2021 Ebitda, well below comparable companies Fox, Thule, YETI
  • Expanding into products for performance EVs
  • Active M&A pipeline, recently acquired AEM for $52 million
  • Empower CEO Matt Rubel brings consumer-based experience from Collective Brands, MidOcean, Revlon, Cole Haan

There’s a scene in the 1990 movie Days of Thunder where Robert Duvall’s character Harry Hogge imagines the possibilities of a stock car. “I’m gonna shave half an inch off you and shape you like a bullet. I’ll get you primed, painted and weighed, and you’ll be ready to go out on that racetrack. Hear me? You’re gonna be perfect.”

Auto enthusiast platform Holley has catered to people like Harry Hogge for more than a century. The company has a family of iconic legendary brands that consumers know and trust. And it is laser focused on innovation, with a stable of more than 135 engineers coming up with new ways to delight consumers in a $34 billion market.

Now investors can take Holley for a test drive. The company is merging with a special-purpose acquisition company Empower Ltd. in a deal that values Holley at about $1.55 billion. The deal is expected to close in the second quarter, when Holley’s ticker will automatically convert from “EMPW” to “HLLY.”

Empower is led by former Collective Brands (parent company of Payless ShoeSource) CEO Matt Rubel. This deep consumer-based experience will help the team at Holley as they continue to develop their digital channels. Once the deal closes, Rubel will serve as chairman and Holley will continue to be run by CEO Tom Tomlinson.

Holley makes and sells parts including fuel-injection systems, carburetors, engine products and exhaust systems for high-performance cars. Based in Bowling Green, Ky., it markets to car and truck enthusiasts to personalize their vehicles with brands such as MSD, Flowmaster and Accel. The Kentucky location gives Holley an adequate supply of workers and is centrally located from distribution standpoint. The community is very supportive of racing and performance automobiles—the minor league baseball team is called the Hot Rods.

Holley had net sales in 2020 during the Covid pandemic of about $580 million, up more than 25% from the year prior and three times larger than its nearest competitor.

About 40% of last year’s sales came from products developed over the past five years, as the company capitalized on demand for high-margin electronic control and powertrain products.

Holley improved its operating margins 170 basis points in 2020 to 25.5%. Free cash flow rose to $135 million for the year, up from $102 million a year earlier. The company sees sales rising 7% in 2021 and 50 basis points of operating margin expansion.

The company provides complete journey to its enthusiast consumers and is looking at 15 potential acquisitions to meet those needs. Holley has bought eight companies in the past seven years and just acquired Advanced Engine Management, Inc., a developer and supplier of electronic control and monitoring systems for performance automotive applications, for $52 million and expects AEM to contribute 2021 pro forma sales of $26 million.

The company has a disciplined pricing model that it implements whenever it acquires a new business. The platform eliminates the incentive to carry excess inventory and allows it to monitor all sales more precisely.

Holley is also thinking about the future, with a transition to EVs underway. There will be a big market for EV enthusiasts who want to work on their cars and Holley is developing products to meet that market, as well as other market extenders. Holley’s first EV products will be out this year and it is already seeing a groundswell of demand from consumers who want to convert their internal combustion cars to electric.

The company began selling directly to consumers in 2014, and this is now the fastest growing part of the business. Since then, Holley has seen a compounded annual growth rate of 43% from the segment, which accounts for 13% of revenue.

The company is also seeing surging demand from big auto parts retailers like O’Reilly Auto Parts and AutoZone who want to add pizzazz to their brick-and-mortar stores but aren’t digitally savvy. That’s where having a brand that consumers love and trust is key.

The good news is that Holley trades at just 10 times 2021 Ebitda. By comparison, Sweden’s Thule Group AB trades at 23 times, YETI Holdings, Inc. trades at 26 times, and Fox Factory Holding Corp. at 27 times, according to Sentieo, an AI-enabled research platform.

At just under $10, or the equivalent of the SPAC’s cash in trust, there is extremely limited downside, giving investors all the more reason to take Holley for a spin. The Days of Thunder lime green racing suit is optional.